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XL Group Poised for Growth Despite Cat Loss, Rising Costs


On Sep 19, 2016, we issued an updated research report on XL Group Ltd. XL.

XL Group boasts an impressive inorganic story supported by strategic acquisitions. Notably, the acquisition of Catlin Group in early May 2015 helped it attain a premier position in the global specialty insurance and reinsurance markets increase alternative capital opportunities and business in the Lloyd's platform. Recently, XL Group entered into an agreement to acquire Brooklyn Underwriting to brace its Australian footprint.

Apart from acquisitions, the Zacks Rank #3 (Hold) property and casualty insurer focuses on emerging opportunities. To that end, XL Group extended its global property insurance capacity to $400 million, which is 25% higher than the earlier capacity of $300 million. The company believes that this increased capacity will help it to address such changes much more effectively and participate actively in its clients’ global property protection efforts.

With strong international exposure and diversified product offerings, we believe that the company is well poised to write higher premiums to drive top-line growth in the future. The expected long tern earnings growth is currently pegged at 9%.

Banking on its operational strength, XL Group engages in shareholder-friendly moves should help in retaining investors’ confidence.

Collectively, these drove the Zacks Consensus Estimate higher over the last 60 days.

However, exposure to catastrophe losses has adversely affected the company’s underwriting results. Moreover, the company’s decreasing net investment income, owing to lower reinvestment rates, is a concern. In addition, escalating operating expenses have been restricting operating margin expansion.

Stocks to Consider

Some better-ranked stocks from the same space include Allied World Assurance Company Holdings, AG AWH, National Interstate Corporation NATL and NMI Holdings, Inc. NMIH. Each of these stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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